Cryptocurrency-related lending has become a black smudge for the industry these days and according to a recent report, bitcoin’s low price has put billions in mining loans under stress. The report, which quotes the co-founder of mining company Luxor Technologies, Ethan Vera, says that roughly $4 billion in loans backed by crypto mining rigs are extremely close to running a risk of default.
Analyst says miners ‘are nervous about their loan books’
The price of bitcoin (BTC) is 21% lower than it was two weeks ago and the price drop has hurt BTC miners a lot. According to a Bloomberg report, analysts say a number of loans secured by mining machines are under water.
Luxor’s Ethan Vera estimates that around $4 billion in loans backed by mining rigs are under stress. “They are nervous about their loan books, especially those with high collateral ratios,” Vera explained to Bloomberg’s David Pan.
Using current BTC exchange rates, only 14 SHA256-based mining rigs enjoy an electrical cost of around $0.05 per kilowatt-hour (kWh), according to statistics from asicminervalue.com. The best mining machines made by Bitmain and Microbt, collect between $2 and around $4.50 per day with an electrical cost of around $0.05 per kWh.
The report notes that miners are selling BTC to bolster operational costs and it highlighted that in May, Core Scientific Inc. sold over 2,000 BTC for operational expenses.
“Bitcoin miners, in general, are feeling pain,” Luka Jankovic, Head of Lending at Galaxy Digital, detailed in the report. “A lot of trades have turned negative net IRR at these levels. Machine values have fallen and are still in price discovery mode, which is compounded by the volatility in energy prices and the limited supply of rack space,” added Jankovic.
JPMorgan Analyst Says Bitcoin Miners Continue to Put Pressure on the Price
Traditionally, during bear markets, bitcoin miners are forced to sell off holdings which puts even more pressure on the price. Another report, quoting JPMorgan analyst Nikolaos Panigirtzoglou explained that bitcoin miners that need to sell will keep weight on the current downward pressure affecting BTC markets in recent times.
Panigirtzoglou and his group of strategists at JPMorgan believe that private miners may have sold off a large chunk of block subsidies to reduce operational costs. A number of reports had shown miners selling large amounts of BTC since February 2022.
“Bitcoin miners have been net distributors since the recent sell-off,” the team of onchain analysts at Glassnode detailed on June 2. “Miners balances have recently declined at a peak rate of 5k to 8k BTC per month ($150M to $240M at $30k BTC).”
Over the past few weeks, a handful of crypto lenders have also come under heavy pressure, and some are facing liquidations. Crypto lender Celsius has come under scrutiny by the crypto community for alleged liquidations and rumors of restructuring and insolvency.
Loans tied to the BTC mining industry may force miners to sell even more BTC if prices go lower than today’s current exchange rates.
